February 4, 2014

Socialized Law Would Be a Massive, Unworkable Nightmare

In days of old, litigants would hire champions to assert their claims in trial by battle. The rich could afford more skilled warriors, and so were more likely to win their lawsuits (and less likely to lose their heads). One could imagine proto-liberals at the time proposing, quite sensibly, that everyone receive a champion of equal quality. Whether this would have improved justice is another matter.

Our legal system today is less arbitrary but this type of unfairness remains. Currently, a lawyer can charge you whatever he or she wants. If you are charged with manslaughter, you might hire a lawyer for, say, $100 per hour, or you might find a better lawyer who charges $500 per hour. You get what you pay for: your chance of acquittal is higher if you shell out the $500. This is unfair, but is it a serious problem for which there is a reasonable solution?

There are many reasons for thinking that this problem is more modest than it first appears. Most ordinary people never sue, or are sued. Ironically, they are protected by their lack of wealth. Lawyers won’t bring cases against someone who causes a car accident because most people own few assets, and nearly all of their assets are protected by law from collection. Most people buy insurance, and so if they injure someone, the victim will sue the insurance company, and if they are injured, their insurance company will pay them and then sue the wrongdoer.

In the unlikely event that you have a real claim against someone, a lawyer—often a very good lawyer—will represent you in return for a contingency fee. Attorneys are also encouraged to take cases pro bono. Class actions allow them to pool resources and win awards for people who don’t even know that they have been harmed. A vast bureaucracy—the EPA, attorneys general, and the like—acts on behalf of everyone, not just rich people.

A very small number of people who are charged with crimes can afford a lawyer. No doubt a rich defendant will obtain a better lawyer than a poor defendant will. But how much of a difference this makes no one knows. If you spend $500 per hour for a manslaughter defense rather than $100, or $50, or $0, just what are you buying? A 100 percent chance higher probability of acquittal? A 50 percent change? A 0.000005 percent chance? If the last, should we care that some people can afford better representation than other people can?

The vast majority of people charged with crimes are too poor to afford a lawyer; they receive a public defender for free. Governments should provide more funding for public defenders than they do, but Noam Scheiber’s proposal for socialized legal services is that governments pay them as much as rich people are allowed to pay for a criminal defense. Should taxpayers pay $500 per hour rather than $100 per hour to reduce the probability of a wrongful conviction (or increase the probability of a wrongful acquittal) of a poor person from what appears to be a very low number to an even lower number? Obtaining unanimous agreement from a jury is hard: this means that the effect of the marginal dollar will be limited, and so taxpayer funds will be wasted unless the price is set very low.

And this brings me to Scheiber’s proposal. He wants to regulate the price of legal services and subsidize legal services for low-income people. Let’s start with price regulation. How exactly this would work is pretty mysterious. He suggests that the government will set the price for a particular “claim.” But the claim that the used car dealer fiddled with the odometer and that Enron lied to investors is the same—a fraud claim, the only difference being that the first one would cost a few thousand dollar to pursue and the second would require millions of dollars to hire experts to pour through records of Enron’s financial asset securitization investment trusts. Scheiber also suggests that the price could be keyed to the award that plaintiffs seek, but this would inevitably cause plaintiffs to exaggerate their harms (as they already do) when they file complaints (back pain, neck pain, emotional distress, lost business opportunities, and so on), and in any event there is no relationship between the complexity of a case—and hence its cost—and the magnitude of the harm that the defendant allegedly caused. Once he’s caught, Bernie Madoff is going to lose no matter what.

How much should The New York Times be allowed to pay its lawyers to protect a journalist subject to a subpoena? To file a FOIA request? What should the price be for a novel challenge to laws that ban same-sex marriage? Should it matter if the plaintiffs make an equal protection claim (expensive?) or a due process claim (cheap?). Or should plaintiffs be forbidden to bring the challenge because they seek an award of zero?

Frequently, a single act like deception can be pursued under numerous different claims (state and federal law, common law and statutory, regulatory, and so on): does the price go up with the number of claims even if they are redundant or partially redundant? And what should the price be for complex litigation involving multiple claims and involving dozens or hundreds of litigants, over many jurisdictions, perhaps across countries? Should it be based on the number of claims? Of parties? Of witnesses? Of documents? Of expected travel costs? In many cases, claims are added and subtracted months or years into litigation. Parties are added or subtracted. Litigation is divided and shunted into different courts, or combined with related cases. Lawyers are fired and replaced. Bad-faith behavior, discovery abuse, manipulation of witnesses create claims within claims. Should this affect the price? The variation is infinite, the difficulties endless. The volumes of regulations that would be needed to regulate the prices of legal services would make the tax code look like a postage stamp.

The details don’t matter, says Scheiber. We can rely on Big Data. But Big Data won’t help when the market has been replaced by bureaucratic price-setting; the Data will just be whatever the government decides to do (a long-recognized problem with socialism is that it is parasitic on prices set by the market). In the meantime, errors in price-setting would produce enormous harms to society.

Consider the subsidy component. This would make litigation free for low-income people. Lawyers would seek them out and bring as much litigation on their behalf as they could, no matter how weak the claim, since the lawyer would get paid whether he wins or loses. Scheiber’s solution is to give defendants even more money to defend. This bonanza for lawyers on both sides of the case will not affect plaintiffs’ incentives to bring lawsuits based on minor conflicts. This is truly distributive justice American-style, something for liberals to be proud of. We don’t give poor people adequate food or shelter, but they would have virtually unlimited access to lawyers, so you can file as many legal motions as you want against the local bodega owner who looked at you crosswise.

Meanwhile, everyone—regardless of wealth—will be forced to abandon valid claims that happen to be more expensive than the price that the government picks. Tough luck. Frequently, people will hit the price ceiling in the midst of litigation. Suppose someone is charged with manslaughter after driving her car into a pedestrian and killing him. Suppose the government-set price for a manslaughter defense is $20,000. She uses most of her money to buy an excellent lawyer but nonetheless the jury convicts. She has some money left over for an appeal but in the meantime some new evidence emerges that the victim was at fault, or the prosecutor engaged in misconduct. Should she use the money to pay a lawyer to make a motion for a new trial? Save it for sentencing? Use it for appeal? One could complicate the regulatory scheme further by giving people the power to apply for new “grants” from the government for additional legal representation as unpredictable developments occur. But this would invite still more tactical behavior by clever lawyers skilled in gaming systems like Scheiber’s.

Scheiber thinks that if rich people can pay no more than poor people, the ceiling will be set very high, so that everyone gets high-quality legal work. But the higher the ceiling, the more lawsuits there will be; the huge burden on the public treasury will force the government to lower the ceiling, leading to a reduction in the quality of our legal system.

The predictable effect of this regime would be to drive the best lawyers from the litigation market. They will move to unregulated sectors—like corporate deals, lobbying, in-house legal advice in firms, and so on. (A vast portion of the legal market—giving people advice in advance of disputes—would be unaffected by Scheiber’s proposal.) Meanwhile, the subsidy will attract lower-quality people into the legal profession.

This prediction is hardly fanciful. Price regulation typically leads to reduction in quality and other inefficiencies in markets for goods and services. We don’t need to look at socialist countries for evidence. In our own country, 1970s-era regulation of prices in trucking, railroads, aviation, energy, and other sectors was abandoned because it led to underinvestment in infrastructure, gold-plated service that no one wanted, waste, inefficiency, bad service, and endless gaming by regulated parties. Expect the same from Scheiber’s proposal.